Accrual basis of accounting the accrual method of

  • No School
  • AA 1
  • 4

This preview shows page 2 - 3 out of 4 pages.

Accrual Basis of Accounting The accrual method of accounting means that "revenue or income is recognized when earned regardless of when received and expenses are recognized when incurred regardless of when paid". Hence, income is not the same as cash collections and expense is different from cash payments. Under accrual basis, revenues and expenses are recognized when they occur regardless of when the amounts are received or paid. For example, ABC Company rendered repair services to a client on December 9, 2017. The client paid after 30 days – January 8, 2018. When should the income be recognized? – On the date it is considered earned (when the service has already been rendered). Hence, the income should be recognized in December 2017 even if it has not yet been collected as of that date. Another example, suppose ABC Company received its electricity bill for the month of March on April 5 and paid it on April 10. When should the electricity expense be recorded? Correct! – March. Why? Because, the electricity expense was for the month of March even if the bill has been received and paid in April. In other words, the "electricity" was used/consumed in March. Accounting Entity Concept The accounting entity concept recognizes a specific business enterprise as one accounting entity, separate and distinct from the owners, managers, and employees of that business. In other words, it means that a company has its own identity set apart from its owners or anyone else. Personal transactions of the owners, managers, and employees must not be mixed with transactions of the company.
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 4 pages?

  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes